Hunter v. Up-Right, Inc.

Decision Date30 December 1993
Docket NumberINC,No. S029708,UP-RIGH,S029708
Citation6 Cal.4th 1174,864 P.2d 88,26 Cal.Rptr.2d 8
CourtCalifornia Supreme Court
Parties, 864 P.2d 88, 62 USLW 2426, 127 Lab.Cas. P [PG57,607 9 IER Cases 97 Charles HUNTER, Plaintiff and Respondent, v., Defendant and Appellant.

Baker, Manock & Jensen, Andrew R. Weiss, Catherine E. Basham, Fresno, Wunsch & George, and Armen L. George, San Francisco, for defendant and appellant.

Paul, Hastings, Janofsky & Walker, Paul Grossman, Paul Cane, San Francisco, Gibson, Dunn & Crutcher, David A. Cathcart, Kathrin Sears and Mark Snyderman, Los Angeles, as amici curiae on behalf of defendant and appellant.

Bennett & Sharpe, and Nicholas John Paul Wagner, Fresno, for plaintiff and respondent.

Joseph Posner, Encino, Quackenbush & Quackenbush, and William C. Quackenbush, Palo Alto, as amici curiae on behalf of plaintiff and respondent.

PANELLI, Justice.

We granted review in this case to determine whether Foley v. Interactive Data Corp. (1988) 47 Cal.3d 654, 254 Cal.Rptr. 211, 765 P.2d 373 (Foley ) precludes recovery of tort damages for fraud and deceit predicated on a misrepresentation made to effect termination of employment. Foley made clear that the employment relationship is "fundamentally contractual," and that--terminations in violation of public policy aside--contract damages are the appropriate remedy for wrongful termination. (Foley, supra, 47 Cal.3d at pp. 665, 696, 699, 254 Cal.Rptr. 211, 765 P.2d 373.) We have continuously adhered to that view. (E.g., Gantt v. Sentry Insurance (1992) 1 Cal.4th 1083, 1086, fn. 1, 4 Cal.Rptr.2d 874, 824 P.2d 680; Shoemaker v. Myers (1990) 52 Cal.3d 1, 24, 276 Cal.Rptr. 303, 801 P.2d 1054; Screen Extras Guild, Inc. v. Superior Court (1990) 51 Cal.3d 1017, 1027, 275 Cal.Rptr. 395, 800 P.2d 873; Newman v. Emerson Radio Corp. (1989) 48 Cal.3d 973, 258 Cal.Rptr. 592, 772 P.2d 1059.) Analyzing the circumstances of this case in light of Foley and of the traditional elements of fraud, we conclude that wrongful termination of employment ordinarily does not give rise to a cause of action for fraud or deceit, even if some misrepresentation is made in the course of the employee's dismissal. Tort recovery is available only if the plaintiff can establish all of the elements of fraud with respect to a misrepresentation that is separate from the termination of the employment contract, i.e., when the plaintiff's fraud damages cannot be said to result from termination itself. The record in this case does not support such recovery. Accordingly, we reverse the judgment of the Court of Appeal.

FACTUAL BACKGROUND

Charles Hunter began working as a welder for Up-Right, Inc. (Up-Right) in January 1973. In 1980 he was promoted to welding supervisor and worked in that capacity until his employment was terminated on September 10, 1987.

In August 1988 Hunter sued Up-Right and his former supervisor, Pat Nelson, alleging causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, and various torts. After this court filed its decision in Foley, supra, 47 Cal.3d 654, 254 Cal.Rptr. 211, 765 P.2d 373, Hunter sought and obtained permission to amend his complaint to allege a cause of action for fraud, based on the same facts as alleged in the original complaint.

The evidence presented at trial was in conflict regarding the circumstances of Hunter's termination. Hunter testified that he enjoyed his job at Up-Right, got along well with coworkers, and received excellent performance evaluations. He testified that at the end of the workday on September 10, 1987, he was called in to meet with Nelson. According to Hunter, Nelson told him that there had been a corporate decision to eliminate his position and that if he did not resign he would be terminated. Hunter testified he asked Nelson for the opportunity to work in a lesser position within the company, but was refused. Hunter then signed a document setting forth his resignation. The next day he picked up his final paycheck, which included $5,200 in severance pay.

Nelson testified to a different series of events. On several occasions during a period prior to September 9, 1987, Nelson testified he had admonished Hunter regarding excessive absences to attend to personal matters. On September 9, 1987, Nelson testified, Hunter told him he was thinking of resigning due to personal problems. Nelson told him to think about it overnight and come back the next day. Nelson directed his secretary, Catherine Olson, to prepare a resignation form for Hunter's signature. On September 10, Hunter returned and told Nelson he had decided to resign. Hunter then signed the resignation form. Nelson had Olson prepare a final paycheck. Nelson testified that no corporate decision had been made to eliminate Hunter's job.

John Maricich, who had been plant superintendent for Up-Right for eight years until his resignation in January 1988, testified that Up-Right had a policy of terminating employees only for good cause. He testified that Hunter was an excellent employee.

Dr. Gerald Martin, a professor of finance in the School of Business at Fresno State University, testified as an economic expert witness that Hunter's past economic losses resulting from termination were $38,013 and that the present value of his future losses was $146,456.

The jury found in favor of Hunter on three theories: breach of implied contract not to terminate employment without good cause, breach of implied covenant of good faith and fair dealing, and fraud. By special verdict, it awarded Hunter $38,013 on the contractual theories and $120,000 for misrepresentation. The parties agreed that the $120,000 figure represented the jury's finding as to Hunter's total damages, and thus included the $38,013 awarded as contractual damages. The trial court entered judgment in favor of Hunter in the amount of $120,000, and the Court of Appeal affirmed.

DISCUSSION

A discussion of the scope of remedies for wrongful termination appropriately begins with an analysis of relevant portions of our decision in Foley, supra, 47 Cal.3d 654, 254 Cal.Rptr. 211, 765 P.2d 373. In Foley we examined the nature of the employer-employee relationship, concluding it is fundamentally contractual. We noted that "[t]he distinction between tort and contract is well grounded in common law, and divergent objectives underlie the remedies created in the two areas. Whereas contract actions are created to enforce the intentions of the parties to the agreement, tort law is primarily designed to vindicate 'social policy.' [Citation.]" (Foley, supra, 47 Cal.3d at p. 683, 254 Cal.Rptr. 211, 765 P.2d 373.) We reaffirmed the principle that an employee who is discharged in violation of public policy can recover tort damages, provided the policy is one affecting a duty that inures to the benefit of the public at large, rather than solely to the employer. (Foley, supra, 47 Cal.3d at pp. 665-671, 254 Cal.Rptr. 211, 765 P.2d 373; see Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 178, 164 Cal.Rptr. 839, 610 P.2d 1330; Gantt v. Sentry Insurance, supra, 1 Cal.4th 1083, 4 Cal.Rptr.2d 874, 824 P.2d 680 [Tameny claim must be predicated on public policy expressed in statute or constitutional provision].) However, we declined the plaintiff's invitation to extend tort remedies for the essentially contractual claim of breach of the implied covenant of good faith and fair dealing. (Foley, supra, 47 Cal.3d at pp. 683-693, 254 Cal.Rptr. 211, 765 P.2d 373.)

Our observations on this latter issue are significant for the present case. We noted in Foley that remedies for breach of the covenant of good faith, which is implied in every contract and aims to make effective the agreement's promises, have almost always been limited to contract damages. (47 Cal.3d at p. 684, 254 Cal.Rptr. 211, 765 P.2d 373.) An exception developed in the context of insurance contracts. In that setting, a variety of policy reasons have led courts to conclude that breach of the implied covenant provides a basis for an action in tort. "The insured in [an insurance contract] does not seek to obtain a commercial advantage by purchasing the policy--rather, he seeks protection against calamity." (Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 819, 169 Cal.Rptr. 691, 620 P.2d 141.) "As one commentary has noted, 'The insurers' obligations are ... rooted in their status as purveyors of a vital service labeled quasi-public in nature. Suppliers of services affected with a public interest must take the public's interest seriously, where necessary placing it before their interest in maximizing gains and limiting disbursements....' " (Id. at p. 820, 169 Cal.Rptr. 691, 620 P.2d 141.) Moreover, "the relationship of insurer and insured is inherently unbalanced: the adhesive nature of insurance contracts places the insurer in a superior bargaining position." (Id. at p. 820, 169 Cal.Rptr. 691, 620 P.2d 141.)

In Foley we emphasized the distinctions between the insurance and employment contexts. In the insurer-insured relationship, the parties' interests are financially at odds: if the insurer pays a claim, it diminishes its own fiscal resources. By contrast, the interests of employer and employee are typically aligned: if there is a job to be done, the employer must pay someone to do it. A breach in the employment relation does not place the employee in the same economic dilemma that an insured faces when an insurer in bad faith refuses to pay a claim or to accept a settlement offer within policy limits. If an insurer takes such actions, the insured cannot turn to the marketplace to find another insurance company willing to pay for the loss already incurred. A terminated employee, on the other hand, can (and must, in order to mitigate damages) make reasonable efforts to find alternative employment. In sum, we were not convinced that the employee necessarily seeks a different kind of...

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